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The new Utopia: GATT and global free trade

By Sir James Goldsmith, 5 October 1994

The following is the October 5 testimony of Sir James Goldsmith
before the Senate Commerce Committee on the subject of the Uruguay
Round of GATT

Federal Document Clearing House Congressional Testimony

SENATE COMMERCE GATT IMPLEMENTATION

October 5, 1994,

Global free trade has become a sacred principle of modern
economic theory, a sort of generally accepted moral dogma. That
is why it is so difficult to persuade politicians and economists
to reassess its effects on a world economy which is changing
radically.

The ultimate objective of global free trade is to create a
worldwide market in products, services, capital and labour. Its
instrument to achieve this is GATT, the General Agreement on
Tariffs and Trade.

I believe that GATT and the theories on which it is based are
flawed. If it is implemented, it will impoverish and destabilize
the industrialized world while at the same time cruelly ravaging
the third world.

Q: Remind us of the economic theory on which GATT is based.

The principal theoretician of free trade was David Ricardo, a
British economist of the early nineteenth century.

He believed in two interrelated concepts; specialization and
comparative advantage. According to Ricardo, each nation should
specialize in those activities in which it excels, so that it can
have the greatest advantage relative to other countries. Thus, a
nation should narrow its focus of activity, abandoning certain
industries and developing those in which it has the largest
comparative advantage. As a result, international trade would
grow as nations export their surpluses and import the products
that they no longer manufacture, efficiency and productivity
would increase in line with economies of scale and prosperity
would be enhanced. But these ideas are not valid in today's
world.

Q: Why?

During the past few years, 4 billion people have suddenly entered
the world economy, include the populations of China, India,
Vietnam, Bangladesh, and the countries that were part of the
Soviet empire, among others. Then populations are growing fast;
in thirty-five years, that 4 billion is forecast to expand to
over 6.5 billion.

These nations have very high levels of unemployment and those
people who do find jobs offer their labour for a tiny fraction of
the pay earned by workers in the developed world. For example,
forty-seven Vietnamese or forty-seven Filipinos can be employed
for the cost of one person in the developed world, such as
France.

Until recently, these 4 billion people separated from our economy
by their political systems, primarily communist or socialist, and
because of a lack of technology and of capital. Today all that
has changed. Their political systems have been transformed,
technology can be transferred instantaneously anywhere in the
world on a microchip, and capital is free to be invested wherever
the anticipated yields are highest.

The principle of global free trade is that anything can be
manufactured anywhere in the world to be sold anywhere else. That
means that these new entrants into the world economy are in
direct competition which the workforces of developed countries.
They have become part of the same global labour market. Our
economies, therefore, will be subjected to a completely new type
of competition. For example, take two enterprises, one in the
developed world and one in Vietnam. Both make an identical
product destined to be sold in the same market, say the USA,
Great Britain or France; both can use identical technology; both
have access to the same pool of international capital, The only
difference is that the Vietnamese enterprise can employ
forty-seven people where the French enterprise can employ only
one. You don't have to be a genius to understand who will be the
winner in such a contest.

In most developed nations, the cost to an average manufacturing
company of paying its workforce is an amount equal to between 25
percent and 30 per cent of sales. If such a company decides to
maintain in its home country only its head office and sales
force, while transferring its production to a low-cost area, it
will save about 20 percent of sales volume. Thus, a company with
sales of 500 million dollars will increase its pre-tax profits by
up to 100 million dollars every year. If, on the other hand, it
decides to maintain its production at home, the enterprise will
be unable to compete with low- cost imports and will perish.

It must surely be a mistake to adopt an economic policy which
makes you rich if you eliminate your national workforce and
transfer production abroad, and which bankrupts you if you
continue to employ your own people.
But the companies that move offshore are those which employ
large labour forces. Surely the new jobs that will be created
by the high- tech industries of the future will compensate.

High-tech industries can, indeed, survive and prosper under these
circumstances, for the very reason that they are highly automated
and therefore employ few people. Labour is no more than a minor
item in the overall cost of the products they make. But obviously
they cannot compensate for the lost manufacturing jobs: the fact
that they employ few people means that they are incapable of
employing very many. As soon as they need to employ a reasonable
number, they will be forced to move offshore. For example, IBM
is moving its disk-drive business from America and Western Europe
to low labour-cost countries. According to the Wall Street
Journal, IBM plans to establish this new site as a joint venture
with an undetermined Asian partner and use non-lBM employees so
that it will be easier ... to move to an even lower-cost region
when warranted ... Moving from higher cost region, to Asia cuts in
half the cost of assembling a disk drive. Mr. Zschau of IBM
admitted that the moves will put IBM on only even footing with its
competitors.

The aircraft manufacturer Boeing has announced that it will
transfer some of its production to China. The sort of companies
that created Silicon Valley, like Hewlett- Packard and
AdvancedMicro Devices, are also shipping employment to low-wage
countries.

Proponents of global free trade constantly say that exporting
such high-tech products as very fast trains, airplanes and
satellites will create jobs on a large scale. Alas, this is not
true. The recent 2.1 billion dollar contract selling very fast
French trains to South Korea has resulted in the maintenance, for
four years, of only 800 jobs in France: 525 for the main supplier
and 275 for the subcontractors.

Much of the work is carried out in Korea by Asian companies using
Asian labour, What is more, following the transfer of technology
to South Korea, in a few years' time Asia will be able to buy
very fast trains directly from South Korea and bypass France. As
for planes and satellites, the numbers employed in this industry
in France have fallen steadily. Over the five years from 1987 to
1992, they have declined from 123,000 to 111,000 and are forecast
to fail to 102,000 in the short term.

One of the big, mistakes that we make is that when we talk about
balancing trade we think exclusively in monetary terms. If we
export one billion dollars' worth of goods and import products of
the same value, we conclude that our overseas trade is in
balance. The value of our exports is equal to that of our
imports, But this is a superficial analysis and leads to wrong
conclusions. The products that we export must necessarily be
those which use only a small amount of labour. If not, they
would be unable to compete with products manufactured in low
labour-cost countries and so would be unexportable. The number
of people employed annually to produce one billion dollars' worth
of high-tech products in the developed nations could be under a
thousand. But the number of people employed in the low-cost
areas to manufacture the goods that we import would be in the
tens of thousands, because these are not high-tech products but
ones produced with traditional levels of employment. So, our
trade might be in balance in monetary terms, but if we look
beyond the monetary figures we find that there is a terrible
imbalance in terms of employment. That is how we export jobs and
import unemployment.

But many economist believe that the growth in service industries
will compensate for lost jobs in manufacturing. Even service
industries will be subjected to substantial transfers of
employment to low-cost areas. Today, through satellites, you can
remain in constant contact with offices in distant lands. This
means that companies employing large back offices can close them
and shift employment to any other part of the world. Swissair
has recently transferred a significant part of its accounts
department to India.

Still, certain services cannot be transferred overseas, such its
health and education.

Indeed, but let's think that through to its practical conclusion.
A nation's economy is split into two broad segments, one which
produces wealth and the other which dispenses it. That in no way
means that the latter is inferior, it includes such vital
activities as health and education. Despite the fact that both
kinds of activities are measured by GNP, one cannot reduce that
part of our economy which produces wealth and expect to be able
to maintain the other part which dispenses it. You must earn
what you spend.

The exchange rates between various currencies also have a
substantial impact on the power to compete. When Ricardo
calculated comparative advantage, he did so in money terms. If a
product costs X French francs in France and Y US dollars in
America, all you need to do is to convert dollars into francs at
the going rate of exchange and it will be clear where the
advantage lies. In other words, the nation in which the product
is cheaper is the nation that has the comparative advantage.

But this calculation can be brutally and suddenly transformed by
a devaluation or a revaluation of one of the currencies. In
1916, one dollar was worth 4.25 French francs, by 1985, the
dollar had risen sharply and was worth 10 French francs; by 1992,
it had fallen again and was worth only 4.80 French francs. So
take a product which in 1981 had the same cost whether
manufactured in America or in France. Four years later, in 1985,
it became more than twice as expensive in America as in France.
This was no more than a reflection of the changing value of the
dollar relative to the franc. Yet, according to Ricardo, each
nation is supposed to specialize in those products in which it has
a comparative advantage. If you followed this reasoning,
industries on which you might have concentrated in America in
1981 would have had to be abandoned in 1985. And the reason
would have been that the comparative advantage would have
disappeared purely for monetary reasons. Then as the dollar fell
again in 1992, the theory would have required that you recreate
the industry in the United States. This is obvious nonsense. No
one should sacrifice and recreate industries merely to be in
rhythm with fluctuations in exchange rates.

Q: Of course, those who believe in global free trade reject your
arguments. Firstly, they cite the joint study published by the
OECD and the World Bank which states that the application of the
GATT proposals would increase world income by 213 billion dollars
a year. How can we turn down such growth?

If you study the report, you will find that the increase is
forecast to come about in ten years' time. Yes, 213 billion
dollars is a large sum of money, but to assess its significance
you must compare it to the world's GNP as it is forecast to be in
ten years' time. 213 billion dollars represents no more than 0.7
per cent. What is more, the General Secretary of the OECD
described the figure in the report as being "highly theoretical".

It is also claimed that global free trade means that consumers
will benefit from being able to buy cheaper imported products
manufactured with low-cost labour. Consumers are not just people
who buy products, they are the same people who earn a living by
working, and who pay taxes. As consumers they may be able to buy
certain products more cheaply, although when Nike moved its
manufacturing from the US to Asia, shoe prices did not drop.
Instead profit margins rose. But the real cost to consumers of
cheaper goods will be that they will lose their jobs, get paid
less for their work and have to face higher taxes to cover the
social cost of increased unemployment. Consumers are also
citizens, many of whom live in towns. As unemployment rises and
poverty increases, towns and cities will grow even more unstable.
So the benefits of cheap imported product swill be heavily
outweighed by the social and economic costs they bring with them.

Q: I understand your argument about increased unemployment, but
why should earnings be reduced?

According to figures published by the US Department of Labor,
since 1973 real hourly and weekly earnings, in inflation-
adjusted dollars, have already dropped respectively by 13.4 per
cent and 19.2 per cent, and that was before the most recent GATT
negotiations known as the Uruguay Round. If 4 billion people
enter the same world market for Labour and offer their work at a
fraction of the price paid to people in the developed world, it is
obvious that such a massive increase in supply will reduce the
value of labour. Also, organized labour will lose practically all
its negotiating power. When trade unions ask for concessions,
the answer will be: If you put too much pressure on us, we will
move offshore where we can get much cheaper labour, which does
not seek job protection, long holidays, and all the other items
that you want to negotiate.

Global free trade will shatter the way in which value-added is
shared between capital and labor. Value-added is the increase of
value obtained when you convert raw materials into a manufactured
product. In mature societies, we have been able to develop a
general agreement as to how it should be shared. That agreement
has been reached through generations of political debate,
elections, strikes, lockouts and other conflicts. Overnight that
agreement will be destroyed by the arrival of huge populations
willing to undercut radically the salaries earned by our
workforces. The social divisions that this will cause will be
deeper than anything ever envisaged by Marx.

It is interesting to note that many US economists believe that
the inflation forces which normally follow a period of lax
monetary policy will not occur in the same way on this occasion.
They believe that the continued lowering of earnings resulting
from global free trade, including the first effects of NAFTA will
restrain inflation despite the fact that the Federal Reserve has
maintained a loose monetary policy for one of the longest periods
on record. In other words, the workforce will bear the brunt of
the consequences of a prolonged policy of easy money by accepting
reduced earnings to compensate for its inevitable inflationary
effects.

Q: Who will be the losers and who will be the winners under a
system of global free trade?

The losers will, of course, be those people who become unemployed
as a result of production being moved to low-cost areas. There
will also be those who lose their jobs because their employers do
not move offshore and are not able to compete with cheap imported
products. Finally, there will be those whose earning capacity is
reduced following the shift in the sharing of value-added away
from labor.

The winners will be those who can benefit from an almost
inexhaustible supply of very cheap labor. They will be the
companies who move their production offshore to low-cost areas,
the companies who can pay lower salaries at home; and those who
have capital to invest where labour is cheapest, and who as a
result will receive larger dividends. But they will be like the
winners of a poker game on the Titanic. The wounds inflicted on
their societies will be too deep, and brutal consequences could
follow.

The new phenomenon of our age is the emergence of transnational
corporations, with the ability to move production at will
anywhere in the world, in order to systematically benefit from
lower wages wherever they arc to be found. Trasnational
corporations now account for one-third of global output; their
global annual sales have reached 4.8 trillion dollars, which is
greater than total international trade, The largest 100
multinational corporations control about one-third of all foreign
direct investment. The globalization of the market is vital to
them, both to produce cheaply and to sell universally. Because
they do not necessarily owe allegiance to the countries where
they operate, there is a divorce between the interests of the
transnational corporations and those of society.

You must remember that one of the characteristics of developing
countries is that a small handful of people controls the,
overwhelming majority of the nation's resources. It is these
people who own most of their nation's industrial, commercial and
financial enterprises and who assemble the cheap labour which is
used to manufacture products for the developed world. Thus, it
is the poor in the rich countries who will subsidize the rich in
the poor countries. This will have a serious impact on the
social cohesion of nations.

Q: What are your thoughts about the World Trade Organization?

That is the organization which is supposed to replace GATT,
regulate international trade, and lead us to global economic
integration, it is yet another international bureaucracy whose
functionaries will be largely autonomous. They report to over
120 nations and therefore, in practice, to nobody. Each nation
will have one vote out of 120. Thus, America and every European
nation will be handing over ultimate control of its economy to an
unelected, uncontrolled, group of international bureaucrats.

If by wise policy or blind luck, a country has managed to control
its population growth, provide social insurance, high wages,
reasonable working hours and other benefits to its working class
(i.e. most of its citizens), should it allow these benefits to
be competed down to the world average by unregulated trade? This
leveling of wages will be overwhelmingly downward due to the vast
number and rapid growth rate of underemployed populations in the
world. Northern laborers will get poorer, while Southern
laborers will stay much the same.

But the application of GATT will also cause a great tragedy in
the third world. Modern economists believe that an efficient
agriculture is one that produces the maximum amount of food for
the minimum cost, using the least number of people. That is bad
economics. When you intensify the methods of agriculture and
substantially reduce the number of people employed on the land,
those who become redundant are forced into the cities. Everywhere
you travel in the world you see those terrible slums made up of
people who have been uprooted from the land. But, of course, the
hurt is deeper, Throughout the third world, families are broken,
the countryside is deserted, and social stability is destroyed.
This is how the slums in Brazil, known as "favelas", came into
existence.

It is estimated that there are still 3.1 billion people in the
world who live from the land. IF GATT manages to impose
worldwide the sort of productivity achieved by the intensive
agriculture of nations such as Australia, then it is easy to
calculate that about 2 billion of these people will become
redundant. Some of these GATT refugees will move to urban slums.
But a large number of them will be forced into mass migration.
Today, as we discuss these issues, there is great concern about
the 2 million refugees who have been forced to flee the tragic
events in Rwanda. GATT, if it "succeeds", will create mass
migrations of refugees on a scale a thousand times greater. We
will have profoundly and tragically destabilized the world's
population.

Q: But why do third world nations themselves support global free
trade?

We must distinguish between the populations on the one hand and
their ruling elites on the other. It is the elites who are in
favor of global free trade. it is they who will be enriched. In
India there have been demonstrations of up to one million people
opposing the destruction of their rural communities, their
culture and their traditions. In the Philippines several hundred
thousand farmers protested against GATT because it would destroy
their system of agriculture.

Vandana Shiva is an eminent Indian philosopher and physicist. She
is Director of the Research Foundation for Science, Technology and
National Resource Policy, and is the Science and Environment
Advisor of the Third World Network. In India, she says, global
free trade will mean a further destruction of our communities,
uprooting of millions of small peasants from the land, and their
migration into the slums of overcrowded cities. GATT destroys the
cultural diversity and social stability of our nation ... GATT,
for us, implies recolonization.

Q: Without global free trade, how could the developing nations
emerge?

Those who wish to industrialize should form free trade areas,
such as the trading regions currently being created in Latin
America and South-East Asia. These areas should consist of
nations with economics which are reasonably similar in terms of
development and wage structures. Trading regions would enter
into mutually beneficial bilateral agreements with other regions
in the world. Freedom to transfer technology and capital would
be maintained. Thus commercial organizations wishing to sell
their products in any particular region would have to produce
locally, importing capital and technology, and creating local
employment and development. That is the way to create prosperity
and stability in the developing world without destroying our own.

Q: Some would say that Europe's employment problem is not GATT,
but just the result of the old-fashioned diseases that one finds
in uncompetitive, inflexible and spoiled societies. The welfare
state is out of control; social costs borne by employers
discourage the creation of new jobs; high government expenditure
and taxation stifle the economy; state intervention is paralyzing;
corporatism blocks remedial action, etc. Is that not true?

It is partially true, and those diseases must be treated
forcefully. But even if the treatment is successful, it will not
solve the problems created by global free trade. Imagine that we
were able to reduce at a stroke social charges and taxation so as
to diminish the cost of labour by a full third. All it would
mean is that instead of being able to employ forty-seven
Vietnamese or forty- seven Filipinos for the price of one
Frenchman, you could employ only thirty-one.

In any case, as we have already discussed, you must remember the
example of France, where, over the past twenty years, spectacular
growth in GNP has been surpassed by an even more spectacular rise
in unemployment. This has taken place while Europe has
progressively opened its market to international free trade. How
can we accept a system which increases unemployment from 420,000
to 5.1 million during a period in which the economy has grown by
80 per cent?

You must understand that we are not talking about normal
competition between nations. The 4 billion people who are joining
the world economy have been part of a wholly different society,
indeed, a different world. It is absurd to believe that suddenly
we can create a global free trade area, a common market with, for
example, China, without massive changes leading to consequences
that we cannot anticipate.

Q: Why is it not possible to repeat our successes in enriching
countries like Taiwan, Hong Kong, South Korea and Singapore?

The combined population of those countries is about 75 million
people, so the scale of the problem is quite different. The US
might be able to achieve a similar success with Mexico and,
progressively, Western Europe could accommodate Eastern Europe.
But attempting to integrate 4 billion people at once is blind
utopianism.

In any case each of those countries has been a beneficiary of the
Cold War. During that period, one or other of the superpowers
sought to bring every part of the world into its camp. If one
failed to fill the void, the other succeeded. That is why very
favorable economic treatment was granted by the West to South
Korea after the Korean War, and to Taiwan, Singapore and Hong
Kong while China was considered a major communist threat. Special
economic concessions combined with their cheap and skilled labor
made them successful. Over the past thirty years the balance of
trade between these countries and the West has resulted in a
transfer of tens of billions of dollars from us to them. The
West has been hemorrhaging jobs and capital so as to help make
them rich.

Q: What do you recommend?

We must start by rejecting the concept of global free trade and
we must replace it by regional free trade. That does not mean
closing off any region from trading with the rest of the world.
It means that each region is free to decide whether or not to
enter into bilateral agreements with other regions. We must not
simply open our markets to any and every product regardless of
whether it benefits our economy, destroys our employment or
destabilizes our society.

Q: Does that not mean that we will cut ourselves off from
innovations in other parts of the world?

No. Freedom of movement of capital should be maintained. If a
Japanese or a European company wishes to sell its products in
North America, it should invest in America. It should bring its
capital and its technology, build factories in America, employ
American people and become a corporate citizen of America. The
same is true for American and Japanese firms wishing to sell
their products in Europe.

Think about the difference between the GATT proposals and those I
have just outlined. GATT makes it almost imperative for
enterprises in the developed world to close down their
production, eliminate their employees and move their factories to
low-cost labour areas. What I am suggesting is the reverse: that
to gain access to our markets foreign corporations would have to
build factories, employ our people and contribute to our
economics. It is the difference between life and death.

Q: But won't that reduce competition?

Competition is an economic tool which is necessary to promote
efficiency, to apply downward pressure on prices and to stimulate
innovation, diversity and choice. Vigorous competition needs a
free market that is large and in which cartels and other
limitations on competitive forces are forbidden. Europe and
NAFTA are economically the two largest free trade areas ever
created in history. Both are more than big enough to ensure
highly competitive internal inlets. They are vast and open and
free and welcome to innovations from anywhere in the world.
Every significant corporation worldwide would have to come and
compete, because no corporation could afford to bypass them -
their markets are much too big and prosperous. But such
competition would be constructive. not destructive.

Many will answer you by saying that you cannot export to other
regions if you maintain a regional economy. There would be
retaliation.

Take a look at Japan: the Japanese have certainly been able to
export over the decades during which they protected their
economy. In any case bilateral trade agreements would allow for
the exchange of products in a way which suited all parties. And
our corporations would be free to invest and compete throughout
the world.

Q: What other recommendations do you have?

I totally reject the concept of specialization. Specializing in
certain activities automatically means abandoning others. But
one of the most valuable elements of our national patrimony is the
existing complex of small and medium-sized businesses and
craftsmen covering a wide range of activities. A healthy economy
must be built like a pyramid. At the peak are the large
corporations. At the base is the diversity of small enterprises.
An economy founded on a few specialized corporations can produce
large profits, but because the purpose of specialization is to
streamline production, it cannot supply the employment which
naturally results from a broadly diversified economy. Only a
diversified economy is able to supply the jobs which can allow
people to participate fully in society.

It is extraordinary to read economists commenting on the state of
the nation. They believe that the profits of large corporations
and the level of the stock market are a reliable guide to the
health of society and the economy. A healthy economy does not
exclude from active life a substantial proportion of its
citizens.

Q: You face a difficult problem in converting the British to
these ideas. Britain has a long tradition of almost unconditional
belief in free trade.

The origin of Britain's belief in free trade goes back to the
early nineteenth century. It was in Britain, at that time, that
the Industrial Revolution was born. The new industrial barons,
whose power was growing in step with the expansion of British
industry, needed ample and low-cost labor to populate their
factories. The idea was that by importing cheap food from the
colonies, British farms would be unable to compete. This would
result in an exodus of farm workers to the cities. At that time,
80 per cent of the British population lived outside urban areas.
Once the farmers who had lost their livelihood reached the towns,
they could be employed cheaply because cheap food was available
from the colonies. What is more, the money that left Britain to
buy the cheap food was recycled back to Britain to buy
manufactured goods. At the time, Britain had a quasi-monopoly of
manufacturing. Those were the dynamics which led to the repeal
of the Corn Laws, which protected British agriculture, in 1846.

Today the circumstances are precisely reversed. Now only 1.1
percent of the British workforce is employed in agriculture;
instead of a need for labour in the towns, there is chronic
unemployment; and the money that leaves Britain to pay for
imports no longer returns to buy British manufactured products.
It goes to Japan or Korea or anywhere else in the world. The
result is that Britain has a trade deficit in practically every
major category of manufactured goods. And even though some of
the large companies make good profits, 25 per cent of all
households and nearly one child in three live in poverty.

One of the greatest fallacies in economic thinking is that the
funds that flow away from a nation as a result of a negative
balance of trade, or of capital outflows, will automatically be
recycled. They believe that the money that goes out must return,
usually in the form of inward capital investment or loans, but
that is naive. When funds leave a nation, those who receive them
are free to invest anywhere in the world. And they will invest
wherever the anticipated returns are highest. They will not
necessarily choose societies which are bleeding to death.

When a system is valid in one set of circumstances, it is
extremely unlikely to be valid in diametrically opposite
circumstances. One would hope that this observation alone might
prompt the British political elites to reassess their economic
doctrine with an open mind.

We seem to have forgotten the purpose of the economy. The
present British government is proud of the fact that labour costs
less in Britain than in other European countries. But it does
not yet understand that in a system of global free trade its
competitors will no longer be in Europe but in the low-cost
countries. And compared to labour in those countries, Britain's
labour will remain uncompetitive no matter how deeply the British
government decides to impoverish its people. In the great days of
the USA, Henry Ford stated that he wanted to pay high wages to
his employees so that they could become his customers and buy his
cars. Today we are proud of the fact that we pay low wages. We
have forgotten that the economy is a tool to serve the needs of
society, and not the reverse. The ultimate purpose of the
economy is to create prosperity with stability.

Q: What do you mean by stability?

Stability does not mean ossification or standing still. A stable
society can accommodate necessary change, without social
breakdown. A stable society can benefit from responsible economic
growth without destroying itself.

Q: How would you convince Germany of the merits of regional trade
in view of the German elites' commitment to globalism?

The Germans should understand that by far their largest customers
are their neighbors; about 70 per cent of Germany's exports are
sold within Europe. Germany cannot want to see its principal
customers impoverished as a result of hemorrhaging jobs and
capital. German prosperity depends on the prosperity of the
other nations of Europe; Germany's social stability will be
deeply influenced by that of its neighbors, and, no matter how
advanced its industrial skills, Germany will suffer from the
transfer of production to low-cost areas, just like the rest of
the developed world. What is more, under GATT, Germany will have
to share its residual markets with imports from Japan, Korea and
others.

Q: How would you sum up the effects of regional free trade?

Let us imagine that Europe returns to the original concept of the
Treaty of Rome, which was the basis for the creation of Europe.
Economically, its purpose was to establish the largest free
market in the world. Within Europe, there would be no tariffs,
no barriers, and a free and competitive market. Trade with
nations outside Europe would be subject to a single tariff. This
concept was known as community preference. In other words,
priority would be given to European jobs and industry. About
twenty years ago, quietly, the technocrats who run Europe started
to alter this fundamental principle and move progressively
towards international free trade. Ever since, unemployment in
Europe has swollen despite growth in GNP. The Treaty of
Maastricht enshrines this change and makes global free trade one
of the fundamental principles on which the new Europe is to be
built. If we were to return to the ideas of our founding fathers
and reimpose community preference, overnight all the enterprises
which have moved their production to low-cost countries would
have to return. They could no longer competitively import
products manufactured outside Europe. Factories would be built,
Europeans would be employed, the economy would prosper and social
stability would return. What is more, international corporations
wishing to sell their products within Europe would also have to
build, employ and participate in the European economy. From being
a community which, at the moment, reeks of death, it would all of
a sudden become one of the most exciting places in which to invest
and participate, and European corporations would go out to invest
and contribute to the prosperity of regions throughout the world.
The same is true for North America.

Insofar as free trade areas consisting of developing economics
are concerned, they also would prosper. For example, currently
free trade areas are being formed in Latin America and in
South-East Asia. Most North American, European and Japanese
corporations will wish to sell their products in these large
markets. To do so, they will have to transfer capital and
technology, build factories in Latin America and South-East Asia
and employ Latin Americans and Asians. By participating in these
economies, they would encourage development. GATT must be
rejected. It is too profoundly flawed to be a stepping stone to a
better system. The damage it will inflict on the communities of
both the developed world and the third world will be intolerable.